Destination Texas: Tax-Free Purchases by Out-of-State Schools

Sales Tax

Government entities from other states are not exempt from Texas sales and use tax.

But, out-of-state public universities, colleges, junior colleges, community colleges, school districts and their respective schools can qualify for exemption from sales tax as educational organizations. Out-of-state nonprofit private schools can also qualify for sales tax exemption.

An out-of-state educational organization can establish the exemption by completing an educational application. We will notify the organization in writing of our determination. If the exemption is granted, we will assign the organization a taxpayer identification number and include it on the Comptroller’s exempt organizations database.

An out-of-state educational organization may make tax-free purchases of goods and services that further its exempt purpose. The organization must give the seller a properly completed exemption certificate to document the exempt sale. The exemption certificate does not require a number to be valid.

Authorized agents should complete the exemption certificate showing the organization as the purchaser, and the reason for exemption as that the person is acting as an agent for the named exempt educational organization. An authorized agent is an employee or other person authorized by the organization to make purchases on behalf of the organization. The agent should sign the exemption certificate. Payment by an authorized agent can either be paid through an instrument issued by the organization (such as a purchase order, check drawn on the organization‘s account or a debit or credit card issued to the organization), or made with cash, personal debit card, personal credit card or personal check in the name of the authorized agent.

An authorized agent cannot claim an exemption from sales tax when purchasing taxable items of a personal nature even if the agent receives an allowance or reimbursement from the organization. Additionally, a person who travels on official business for the organization must pay sales tax on taxable purchases whether reimbursed on a per diem basis or reimbursed for actual expenses incurred. See Rule 3.322(g)(5) and (6).

A seller is not required to accept an exemption certificate and may choose to collect the tax. If a seller chooses not to honor an exemption certificate, the exempt organization or authorized agent can ask the seller for an Assignment of Right to Refund, so the organization can request a refund of the tax directly from the Comptroller.

Hotel Occupancy Tax

Independent school districts, public and nonprofit private elementary and secondary schools from other states and nations who qualify for exemption from Texas sales and use tax as educational organizations also qualify for exemption from Texas hotel occupancy tax. Public and private colleges, universities, junior colleges and community colleges from other states and nations do not, however, qualify for the exemption.

Motor Vehicle Rental

With the exception of Texas public schools, there is no motor vehicle rental tax exemption for educational organizations. Only Texas public universities, colleges, junior colleges, community colleges, independent school districts and public elementary and secondary schools can rent a motor vehicle tax free in Texas.

When making an exempt rental, the Texas public entity must complete the motor vehicle rental exemption certificate to claim the exemption. The certificate must be signed by an authorized representative of the entity renting the vehicle.

Schools from other states, whether public or private, must pay tax on the Texas rental of motor vehicles.

Please note that some Texas cities and counties have created sports and community venue districts that may also impose a tax on the short-term rental of motor vehicles. Any such taxes are administered locally and, generally, the same exemptions apply.

Fuels

There is no exemption for motor fuel taxes for out-of-state public or private educational organizations.

More Information

For more information, see Exempt Organizations: Sales and Purchases (Pub. 96-122) , Guidelines to Texas Tax Exemptions (Pub.96-1045) and the August 2012 Tax Policy News.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1209.html